City expenses grow even with a no-frills budget

PROPERTY TAX INCREASE

Mufi Hannemann

THE CITY'S recent announcement of property tax valuations has stirred considerable concern and anguish among homeowners facing much higher property tax bills come August. Many longtime homeowners have been shocked at the dramatic rise in the values of their properties in the wake of our real estate market boom.

Help is on the way.

Between now and late summer, when the tax bills are due, my administration and the City Council should have taken action to cut $40 million in taxes, with our priority the longtime homeowner. If every homeowner receives an equal share of this cut, it would be $300 or equal to a total exemption of $120,000.

Accompanying that immediate step are two longer-term ideas. One is to create a "homeowner" class of property owner. The neighbor island counties have all adopted this category to distinguish the owner-occupant from other property owners, and the result has been reduced taxes for those owner-occupants. If approved, the new class would be effective July 2007.

I'm also forming a Tax Policy Committee to take a thorough look at our property tax system to determine if we can make improvements or changes that will guard against a repeat of this situation.

But short-term tax cuts and long-term tax relief are only half the story. The other half involves tackling our financial problems, both short- and long-term.

For the near term, here's what we're facing:

» We need $16 million to pay for an increase in our debt payments to the people who have bought our general obligation bonds and underwritten years of profligate spending by the prior administration on so many construction projects.

» TheBus has incurred higher costs for fuel in recent months. When salary increases are included, we need to allot an additional $10 million to the city's share for our mass transit system this coming fiscal year.

» Pay raises for public safety employees, which were negotiated before I came to City Hall, will add $15 million to the coming year's budget. These are raises for police officers, fire fighters, emergency medical personnel and others who ensure our safety and security.

Pay raises for other employees, again negotiated before I arrived, will add another $24 million to the budget.

» We also need to establish a fiscal stability reserve. A reserve of 5 to 8 percent of our annual operating budget (roughly $50 million-$80 million) would be ideal. However, we're willing to build that over time. For the coming year, we plan to set aside $20 million. This will be a savings account of sorts to help us get through a natural disaster, an economic debacle like the Gulf War and 9/11 crises, or new mandates and lawsuits. A reserve has the benefit of improving our bond rating so that we can reduce the amount of interest we pay on our debt.

The total of these obligations, the tax cut and the reserve is $125 million, which is the amount we expect to receive from the rise in property valuations.

These obligations come at a time when we are holding a tight rein on our budget. And this is despite our need for more money for road repairs, fire station renovations, new fire engines to replace aging ones, maintenance of parks and public facilities and to compensate for severe manpower shortages that have hindered improvements in such basic city services as driver licensing, building permit approvals, construction of repairs and so forth.

Had we not received this added revenue, then we would have faced severe cuts in public services, increased fees and taken other steps to balance our budget.

Over the long term, here's what we're facing:

The Mayor's Review, conducted by an independent team drawn from the rolls of business, labor, the public sector and the community at large, reported last February that the city was in deep financial trouble. I reported that the previous administration deferred $925 million in debt service and operating expenses, such as repairs, equipment, technology and the basics of city government. It raided special funds, such as the sewer fund, to pay for everyday operating expenses. Money earmarked for much-needed capital improvements was used instead for daily costs. That's why the city now owes its creditors $3 billion, or $3,000 for every man, woman and child on this island.

Our fixed costs and annual debt service continue to escalate. We expect to get by this fiscal year and next. However, beginning in 2009, our deficit will climb to the point where we'll be $15 million in the red by 2009, $92 million by 2010, $137 million by 2011 and $174 million by 2012.

We have refocused our spending at fixing roads, sewers and public facilities. We canceled the $50-million Bus Rapid Transit project, Waikiki natatorium renovation, dozens of construction projects and encouraged private sponsorship of Sunset and Brunch on the Beach events. You can expect us to continue to cut unnecessary spending and emphasize public-private sponsorships, whenever possible.

Our challenge is to meet the needs of today and make up lost ground on long-deferred repair and maintenance, while capitalizing on opportunities to improve our quality of life. Our goal remains to work with the City Council to make the City and County of Honolulu the best place to live, work and raise our families.

The City Council is considering a slew of proposals to cut property taxes and tax rates. But if we cut our revenues, we'll have to make up the difference somehow.

I ask the Council members and those asking for tax cuts, if these cuts go beyond what is necessary to sustain an essentially no-frills city budget, then what services shall we reduce to make up the shortfall?

I ask that you think long and hard about that question, and this one: If you've enjoyed the improvements we've made in your neighborhoods and what we're planning for the future --better streets, sewage improvements, parks repairs and maintenance, more police and other basic, essential services -- then consider what you're willing to live without.